Re: Charitable giving in a Will
Posted: January 11th, 2023, 11:21 pm
tjh290633 wrote:mc2fool wrote:Lootman wrote:hiriskpaul wrote:The reduced IHT rate also can make charitable giving more tax efficient if done in a Will than done when you are alive, which I think is very perverse, but maybe charities benefit overall from the measure.
Whilst alive you can receive a tax benefit via Gift-Aid. After death there can be an IHT saving. Which is better would depend on your individual tax situation, I would have thought.
Actually you don't get any tax benefit via Gift-Aid, it's the charity that does by (effectively) receiving your donation gross of tax.
It may appear that you get a tax benefit if you're a higher rate taxpayer, 'cos you get money back (in the form of a reduction of taxes) but actually it's just a balancing to make your donation gross.
E.g. you give £100 to a charity and they claim Gift Aid to make your donation £125. As an HRT you claim back £25.00 (£125 x 20%), which makes it appear that you paid just £75 (£100 less the £25) for the charity to get £125. But that £75 is out of your net income, which (at 40%) you'd have to have earned £125 gross to get. So, after all that, the benefit is solely that the charity gets your donation gross.
Bequests to charities are also made gross (of IHT in that case), so there's no difference to them for that, per se, but the 10% rule means that it can also be a benefit to you (well, your estate and beneficiaries).
Having been through the process of submitting tax returns a good few times, the procedure, as I see it, is that your basic rate of tax is increased by the amount of gift aid claimed by the charity, so giving you relief from Higher Rate Tax on your donations.
It might be worth looking at HMRC's calculations in this respect.
TJH
In your self assessment your basic rate tax band is increased, but yes, that's correct. That's how HMRC implements what I said above.
"Example: You donate £100 to charity - they claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%)." https://www.gov.uk/donating-to-charity/gift-aid